Proposed Regs Cover Foreign Currency Debt Instruments

Washington (Sept. 2, 2003) -- New proposed regulations from the Treasury Department provide detailed rules on the tax treatment of contingent payment debt instruments that are denominated in a foreign currency.

Existing regulations cover the tax treatment of non-contingent debt instruments denominated in foreign currency, and on contingent payment debt instruments not denominated in foreign currency. The new proposed regulations fill the gap between these two existing sets of rules.

The proposed regulations generally apply the "non-contingent bond method" under Section 1275 regulations to the debt instrument in the currency in which it is denominated.

The resulting amounts then are translated into the taxpayer's functional currency, and gain or loss determined under rules similar to the existing rules for non-contingent foreign currency-denominated debt instruments.